[Federal Register Volume 59, Number 22 (Wednesday, February 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2302]


[[Page Unknown]]

[Federal Register: February 2, 1994]


                                                    VOL. 59, NO. 22

                                        Wednesday, February 2, 1994
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DEPARTMENT OF AGRICULTURE

Forest Service
RIN 0596-AA33

 

Financial Security of National Forest System Timber Sale 
Contracts

AGENCY: Forest Service, USDA.

ACTION: Notice; adoption of final policy.

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SUMMARY: The Forest Service is adopting final policy and procedure 
related to timber sale contract financial security. The final policy 
will increase the amount of the bid guarantee, revise the method for 
determining damages for failure to consummate a contract, eliminate the 
performance bond ceiling, and limit the applicability of the sale 
discounting procedures. The intent of the final policy is to better 
protect the public's interest in the sale of National Forest System 
timber by reducing the opportunity for speculative bidding and 
defaulting contract obligations. This policy is being issued to guide 
Forest Service personnel as Amendment No. 2400-93-____ to the Forest 
Service Manual (FSM) chapter 2430, Amendment No. 2400-93-____ to FSM 
chapter 2450 and Amendment No. 2409.18-93-____ to chapter 50 of FSH 
2409.18, the Timber Sale Preparation Handbook.

EFFECTIVE DATE: These amendments are effective February 2, 1994.

FOR FURTHER INFORMATION CONTACT: Questions about this policy should be 
addressed to Fred Walk, Timber Management Staff, Forest Service, USDA, 
P.O. 96090, Washington, DC 20090-6090, (202) 205-0858.

SUPPLEMENTARY INFORMATION:

Background

    After the timber market collapse of 1981, an unprecedent number of 
National Forest System timber sale contracts became unprofitable. Some 
contracts were defaulted and others were ``bought out'' by the 
Government under the Federal Timber Contract Payment Modification Act. 
The market decline during the 1980 period exposed a number of potential 
long-term difficulties with National Forest System timber sale 
procedures which, if not remedied, could result in speculative bidding 
and increase the potential for contract defaults in the future.
    In 1982, the Forest Service began implementing a number of contract 
reforms to reduce speculative and unsound bidding, to provide for an 
even flow of timber receipts into the Treasury, and to prevent sale 
defaults. The following changes or additions to financial requirements 
on National Forest System sales were made:
    (1) The timber sale bid guarantee was raised to 5 percent of the 
advertised value of contract;
    (2) A cash deposit was required. The initial deposit requirement 
was for 5 percent of the bid value of a sale; this was later increased 
to 10 percent;
    (3) The maximum amount of the performance bond was changed from 
$200,000 to $500,000; and
    (4) A midpoint payment to the Government was required to provide 
additional incentive for timely timber removal.
    These changes in timber sale financial requirements have been 
somewhat successful in stabilizing timber sale contracting by 
encouraging performance; discouraging speculation; and more adequately 
securing contract performance. However, additional changes are needed 
to further enhance financial security of timber sale contracts and to 
protect the taxpayer from repudiation of bids and default of contracts.
    Past experience indicates that prices being bid for Forest Service 
timber frequently rise substantially over the advertised rates 
established by the agency's appraisal of the fair market value of the 
timber. The agency determines the appraised value by using the selling 
value of lumber and other forest products or by using transaction 
evidence of other comparable timber sales. When bid values far exceed 
advertised values and lumber selling values remain constant or rise 
minimally, the potential for purchase financial loss increases. Thus, 
based on bidding experience, the Forest Service believes that the 
public and the Government could be facing additional repudiations of 
bids and defaults of contracts if lumber selling values do not keep 
pace with bid values and if additional financial security requirements 
are not instituted. Accordingly, the agency believes it is essential to 
take additional steps to protect the public's financial interests in 
timber sale contracts, assure timely execution and completion of 
contracts, and minimize the financial risk to the Government. These 
additional financial security measure were published as a proposed 
policy in the Federal Register of December 7, 1990 (55 FR 50651).

Analysis and Response to Public Comments

    The comment period on the proposed policy closed January 7, 1991. 
Nineteen respondents submitted comments. The comments came from 2 
private citizens, 10 timber purchasers, 5 timber purchase associations, 
a preservation association, and timber advocacy group. Of the 19 public 
comments received, 15 came from the West and 4 from the East. Fifty-
eight percent of the respondents expressed support for the policy 
proposals either in their entirety or with suggested modification. The 
remaining 42 percent did not support the proposal primarily because of 
perceived increases in the cost of doing business.
    The following summarizes the comments and suggestions received on 
the proposed policy changes and the Department's response to these in 
the final policy.

1. Performance Guarantee Ceiling

    The proposed policy would have eliminated the present $500,000 
ceiling on the amount of performance guarantee required by the timber 
sale contract and set the minimum performance guarantee at 10 percent 
of the bid value.
    One respondent suggested that, at the time of first entry into a 
sale area, the performance bond be equal to the present value of the 
``worse case'' outcome of the logging operation. The agency disagrees. 
The objective of a performance guarantee or performance bond is to 
assure that the terms of the contract are met. Performance guarantees 
must protect the interests of the Government. The respondent's 
suggestion would be impossible to administer. The Agency believes that 
determining the ``worst case'' outcome would be highly subjective and 
subject to dispute between the contract parties. The ``worst case'' 
outcome might be the default of a high priced sale which was later 
resold to determine damages. Making a projection of some future resale 
value of a sale that may or may not be defaulted is speculative and 
could result in very high performance bonds which would place an unfair 
economic burden on the majority of the timber purchasers who fully 
perform their timber sale contracts.
    Four respondents objected to eliminating the performance bond 
ceiling. They thought the change would result in increases in their 
bonding requirements, put them at a competitive disadvantage, and 
discriminate against small business. The agency recognizes that small 
business could be disadvantaged in obtaining bonding in excess of 
$500,000. Nevertheless, the agency believes that only a few large and 
high value timber sales will require bonds of more than $500,000. The 
agency is of the opinion that 10 percent of the bid value is a 
reasonable amount for providing the minimum amount of performance bond 
to provide assurance of contract performance.
    Most of the timber sale contracts sold within the last 15 years 
have required a performance guarantee that was equivalent to 10 percent 
of the bid value subject to certain maximum amounts. The maximum 
performance guarantee for sales sold since the spring of 1982 has been 
$500,000. Removal of the $500,000 ceiling would ensure that the 
performance guarantee amount would be applied equally to all sales. In 
the face of existing bids, the current ceiling could result in less 
secure guarantees that purchasers of high-priced sales will perform 
their contracts. Removal of the ceiling on performance guarantees 
should not affect many of those purchasers that ordinarily bid on 
National Forest timber sales. The removal of the cap would only affect 
sales with more than $5 million bid value. Very few sales are this 
size, and few small businesses buy timber sales that are this 
expensive. Therefore, the change would not stifle or constrain 
competition. What the removal of the ceiling will do is help to deter 
speculation by increasing capital requirements and, thus, in these 
large sales increase bidder financial liability in the event of 
default.
    Having considered the comments received, the agency is retaining 
the elimination of the $500,000 upper limit on performance bonds in the 
final policy.

2. Increased Bid Guarantee

    Under the proposed policy, the amount of bid guarantee required for 
bidding on National Forest System timber sales would increase to 10 
percent of the advertised value.
    One respondent suggested that the purchaser be required to pay the 
full amount of the winning bid at the time of the sale. The agency 
believes this would place a severe economic hardship on timber 
purchasers that would result in a significant decrease in competition 
and a reduction in receipts to Federal, State, and county treasuries. 
In some cases, requiring full payment of bid value at time of sale 
could prevent companies from purchasing National Forest System timber 
resulting in loss of employment and economic hardship to dependent 
communities.
    Five respondents were opposed to increasing the amount of bid 
guarantee to 10 percent of the advertised value. The basis for their 
objection was that the additional bid guarantee would place an 
additional economic stress on the small timber purchaser and would 
eliminate many from bidding. The agency disagrees. The bid guarantee 
(deposit with bid) is a good faith showing that a timber sale high 
bidder will complete the requirements for contract award and will 
execute the contract within the specified time period. The bid 
guarantee also serves as a measure of the ability of the bidder to meet 
the financial requirements for a downpayment, periodic payment, and 
bonding capacity. Many bidders use bid bonds as a bid guarantee rather 
than obligating their cash. If bid bonds are used, only the high bidder 
would be required to convert the bid bond to cash, and it is not 
necessarily an increase in cash requirements for all bidders. The high 
bidder's cash would then be used to offset the amount required for 
downpayment. The increase in bid guarantee from 5 percent to 10 percent 
of advertised value will result in the high bidder making a larger cash 
deposit for the approximately 30 days between the bid date and the due 
date for the downpayment. This short-term increased cash requirement 
could create a financial hardship for some high bidders. The agency 
believes that this hardship is more than offset by the increased 
protection from speculative bidding and from contract repudiation. The 
increase in bid guarantee will also provide the government with 
increased financial security by providing a source of funds to satisfy 
the Government's losses if the contract is repudiated. Therefore, an 
increase in bid guarantee to 10 percent of the advertised value is 
adopted in the final policy.

3. Procedures for Determining Contract Repudiation Damages

    The proposed policy based the determination of damages resulting 
from repudiation of a bid on the terms contained in timber sale 
contract provision C(T)9.4. Provision C(T)9.4 generally establishes 
damages as the difference between current contract value at the time of 
breach and the bid value established upon resale. The proposed policy 
provided the option of retaining the timber and establishing damages 
for breach based on appraised rather than resale value, if resale could 
not be accomplished in the immediate future or if no bid was received 
at resale.
    One respondent supported the concept that repudiation constitutes a 
breach of contract. The respondent suggested that the penalty for this 
breach should not only exclude the bidder from participating in the 
resale, but also treat damages as a default with the bidder being 
required to furnish double the normal downpayment until any default 
amount is satisfied. The agency agrees with this comment. Repudiation 
of contracts will be handled under 36 CFR 223.49(e) which requires that 
a purchaser or affiliate awarded a future Forest Service contract must 
meet additional downpayment requirements under specific circumstances, 
including failure to perform in accordance with the terms of a timber 
sale contract. The additional downpayment requirements are that such a 
purchaser must make a minimum downpayment equal to 20 percent of the 
total advertised value, plus 40 percent of the total bid premium.
    Three respondents suggested that repudiated contracts be offered 
and sold to the second high bidder at the price submitted by that 
bidder. They further suggested that damages be determined as the 
difference between the original high bid and the second high bid. This 
approach would be satisfactory in many instances. The agency believes, 
however, that there will be instances where second high bidders would 
decline to accept the sale at the price they bid because of the lapse 
of time from the bid date. When this occurs there would be no resale of 
the timber and, consequently, no basis for determining damages. This 
approach would also present the risk of selling the sale at the lower 
second high bid when, during an ascending market, open competitive 
bidding would result in a higher bid. Consequently, the final policy 
retains the features of the proposed policy, and damage calculation 
will be based on offering the sale to the lower bidders in descending 
order of their bids at the high bid price. If no bidder accepts the 
sale at the high bid price, it would normally be reoffered at 
advertised rates for open bidding.
    One respondent stated that the proposed policy was an over reaction 
to the problem and suggested that the government make an estimate of 
repudiation damages before advertising and then set the bid guarantee 
accordingly. This approach is similar to the concept of liquidated 
damages that is currently the method for determining damages resulting 
from repudiation of service contracts. however, the agency believes 
that to adequately protect the public interest, damages must be based 
on an actual loss or cost to the government and that estimating the 
damages of a potential repudiation well in advance of the fact would be 
fraught with inaccuracies and very subjective. It would be very 
difficult to accurately estimate bid rates 60 or more days in advance. 
In summary, this approach would not provide the government with an 
adequate determination of damages resulting from repudiation of a bid.
    Four respondents objected to the language of the proposed policy 
that would provide the Forest Service the option of retaining the 
timber and establishing damages for this breach based on appraisal 
rather than resale, if resale cannot be accomplished in the immediate 
future or if no bids are received on the resale. These respondents 
think that the Forest Service must resell the repudiated sale in order 
to establish damages. They contend that if the repudiated sale is 
withdrawn for some reason, the government has not suffered damages. 
They would establish damages based on the resale value plus certain 
additional costs, such as interest and the cost of resale. The agency 
disagrees with this comment. The effort and resources expended to 
prepare and offer a timber sale are made in good faith. Repudiations 
add delay and costs regardless of subsequent events. Delay may cause 
loss of the opportunity to sell the timber at all if timber is damaged 
or deteriorates due to fire, insects, or storm damage. Also legal or 
other government actions such as new legislation, new court 
interpretations of existing law, or an agency listing of a wildlife 
species as threatened or endangered may develop during or as a result 
of delay which make prompt resale not possible. Even though most sales 
are reoffered for sale within six months, the agency strongly believes 
that damages based on the appraised value of the sale plus 
administrative costs associated with the repudiation are appropriate if 
the sale cannot be reoffered.
    Therefore, the final policy differs from the proposed policy only 
in that a bidder that repudiates a timber sale contract will be subject 
to double down payment for future contracts. Under the final policy, 
when a sale is reoffered and the resale bid price does not exceed the 
original purchaser's price plus certain additional costs (e.g. interest 
and the cost of resale), damages are assessed at the amount of the 
deficiency. Further, the policy provides the Forest Service the option 
of retaining the timber and establishing damages for this breach based 
on appraisal rather than resale, when resale is not accomplished in the 
immediate future or if no bids are received at resale.

4. Timber Sale Discounting

    The proposed policy would have discontinued the discount procedure 
implemented on a forest-wide test basis on some National Forests in 
western Oregon, western Washington, and northern California and would 
have applied the current discounting procedures on an individual sale 
basis when timber characteristics support a need for immediate 
harvesting. Instances might include fire-damaged, insect-damaged, and 
wind-thrown timber when prompt removal would support the accomplishment 
of land management objectives and provide for optimal utilization of 
salvage timber.
    Four respondents objected to discontinuing the discounting test. 
They stated that discounting provides an incentive to counter the 
hoarding tendency of some purchasers and enhances the continued harvest 
of timber sales in a timely manner. These respondents think that an 
incentive-based approach encouraging early harvest is much better than 
the proposed policy which they considered a disincentive. Two 
respondents objected to use of discounting procedures on an individual 
sale basis. Stating that the proposal was inadequately defined, was an 
administrative over-reaction, and was costly and complicated, these 
respondents concluded that the Forest Service will be reluctant to 
apply discounting to individual sales.
    The agency recognizes that incentives such as discounting are 
effective in encouraging early harvest of timber. However, the agency 
believes that continued area-wide use of discounting as an inducement 
for early harvest of timber is not warranted based on current market 
conditions, low volume of timber under contract, current rapid rates of 
harvest, and anticipated lower sale levels. The agency believes that 
blanket use of discounting unnecessarily devalues the timber when there 
is no need for prompt harvest of timber. Further, the agency believes 
the continued use of discounting could contribute to speculative 
bidding by persons who expect to harvest timber early in the contract 
period. Such speculation may result in an unfair competitive advantage 
for some purchasers. Also, if a purchaser's expectations of early 
harvest cannot be realized, payment of undiscounted prices higher than 
expected could cause default.
    Despite agency concerns about the blanket application of area-wide 
discounting, the agency believes that there are some situations (e.g., 
early removal of fire-damaged, insect-damaged, and wind-thrown timber), 
where the use of discounting can be warranted. In such situations, the 
expectation is that lower payment rates and the other disadvantages of 
discounting will be more than offset by the benefits of prompt harvest 
of timber subject to rapid deterioration and by protection of other 
resource values. Further, discounting procedures on an area-wide basis 
may become warranted if the present market or other conditions is an 
area change to the degree that encouragement of prompt harvest is in 
the government's interest. For example, high levels of uncut volume 
under contract could cause the agency to consider area-wide use of 
discounting.
    Recognizing that the discount procedures are complicated and that 
there could be some reluctance among Forest Service officials to 
include discounting provisions in an individual timber sale contract or 
to seek approval for area-wide use, the agency believes that 
justification and approval processes will ensure that discounting is 
applied only where and when there is good rationale for its use.
    Therefore, having considered all of the comments, the final policy 
on discounting is the same as that proposed. The final policy provides 
for use of discounting upon an individual sale basis when specific 
situations justify the need for immediate harvesting and on an area-
wide basis only when warranted by market conditions and upon request of 
the Regional Forester and approved by the Chief. Under the final 
policy, situations requiring the use of discounting must be documented 
by the line officer with the authority to approve the sale on which it 
is to be used. When market conditions warrant discounting on a National 
Forest or area-wide basis, the Regional Forester may request approval 
to use discounting from the Chief of the Forest Service. The request 
for approval must document the existing and anticipated market 
conditions (e.g., volume under contract, rate of removal, when volume 
is removed during the contract, expected sell levels) for the Region or 
area affected.

Conclusion

    The objectives of the financial security measures contained in this 
final policy are to assure timely execution and completion of timber 
sale contracts, to maintain competition by qualified bidders, to 
discourage speculation, and to minimize the financial risk to the 
Government in instances where purchasers do not complete contracts.
    The final policy eliminates the present $500,000 ceiling on the 
amount of performance guarantee required by the timber Sale contract, 
and establishes the minimum performance guarantee at 10 percent of the 
total bid value.
    The final policy increases the amount of bid guarantee required to 
bid on National Forest System timber sales to 10 percent of the total 
advertised value.
    Under the final policy, repudiation of a bid will be considered a 
breach of contract and damages will be based on the bid price of the 
reoffered timber plus administrative costs, such as the costs incurred 
by the government in making the reoffer plus interest. Further, if no 
bids are received on the reoffered sale or if the timber cannot be 
immediately reoffered due to delay or other factors, damages will be 
the difference between the repudiated bid value and the appraised value 
of the reoffering. Administrative costs will then be added to the 
difference in values.
    The final policy discontinues the discounting procedure implemented 
on a forest-wide, test basis on some National Forests in western 
Washington, Oregon and Northern California initiated in 1982 (47 FR 
16181). The final policy provides for Service-wide use of discounting 
upon an individual sale basis when specific situations justify the need 
for immediate harvesting and on an area-wide basis only when warranted 
by market conditions and upon request of the Regional Forester and 
approval by the Chief.

Regulatory Impact

    This action has been reviewed under USDA procedures and Executive 
Order 12291 on Federal Regulations. It has been determined that this 
policy is not a major rule. The procedures implemented by this policy 
will not have an effect of $100 million or more on the economy, 
substantially increase prices or costs for consumers, industry, State, 
or local governments, nor adversely affect competition, employment, 
investment, productivity, innovation, or the ability of United States-
based enterprises to compete in foreign markets. In short, little or no 
effect on the National economy will result from this notice of policy 
change. This action consists of administrative changes to policy for 
timber sale contract financial security. With regard to the removal of 
the bond maximum, very few sales are over $5 million in value; 
therefore, few sales or purchasers are involved. The largest of sales 
are more likely to affect large businesses than small. The change in 
liability for repudiation of contract (by failing to provide the 
necessary bond; execute the contract; or make the required cash 
deposit) will only have an effect on purchasers who do not consummate 
their contracts. These purchasers are expected to be few in number. All 
prospective purchasers must submit a bid guarantee with their bids. The 
guarantee is returned to the unsuccessful bidders after completion of 
the bid opening procedures. Only the high bidder is required to 
maintain the bid guarantee until the contract is consummated. Under 
existing procedures, the successful purchaser would have to provide a 
performance bond equal to 10 percent of the bid value and, in addition, 
make a minimum cash deposit equal to 10 percent of the bid value within 
30 days after notification of award. In view of existing requirements, 
increasing the bid guarantee to 10 percent of the advertised value 
should have minimal effects on purchasers.
    This final policy has been analyzed in accordance with the 
principles and criteria contained in Executive Order 12630, and it has 
been determined that the final policy does not pose the risk of a 
taking of constitutionally protected private property.
    Moreover, this policy has been considered in light of the 
Regulatory Flexibility Act (5 U.S.C. 601 et. seq.), and it has been 
determined that this policy will not have a significant effect on a 
substantial number of small entities as defined by the Act. Additional 
financial security measures do have some economic impact on all classes 
of businesses, and the majority of the agency's timber sales are 
purchased by small businesses. However, the adopted measures have the 
intended effect of preventing speculative bids, defaults, and 
repudiation of timber sales. Therefore, they will benefit the majority 
of small businesses dependent on the agency's timber sales as a source 
of raw material, by helping ensure that small businesses are not 
competing for the limited timber resource that is offered for sale 
against businesses that speculatively bid or make a high bid and then 
lack the financial means to operate the sales. Moreover, these measures 
will preserve the long-range revenues to affected counties and will 
reduce the adverse economic impacts these entities would experience in 
the event of sale defaults.
    Further, this policy has been reviewed under Executive Order 12778, 
Civil Justice Reform. Adoption of this policy will have the following 
effect: (1) All state and local laws and regulations that are in 
conflict with this policy or which would impede its full implementation 
are preempted; (2) the policy expressly repeals or modifies previous 
policies; (3) the policy is not to be applied retroactively; (4) and no 
administrative procedures are necessary before a party may file suit in 
court challenging this policy.
    This policy will not result in additional paperwork not already 
required by law or not already approved for use. Therefore, the review 
provisions of the Paperwork Reduction Act of 1980 (44 U.S.C. 3507) and 
implementing regulations at 5 CFR part 1320 do not apply.
    This policy deals with business practices related to timber sale 
contracts and, as such, has no direct effect on the amount, location, 
or manner of timber offered for purchase. Section 31.1b, paragraph 2, 
of Forest Service Handbook 1909.15 (57 FR 43180; September 18, 1992) 
excludes from documentation in an environmental assessment or impact 
statement ``rules, regulations, or policies to establish Service-wide 
administrative procedures, program processes, or instructions.'' Based 
on consideration of the comments received and the nature and scope of 
this policy, the Forest Service has determined that this rule falls 
within this category of actions and that no extraordinary circumstances 
exist which would require preparation of an environmental assessment or 
environmental impact statement (40 CFR 1508.4).
    The text of the final policy as it will be issued in the Forest 
Service Manual and Timber Sale Preparation Handbook is set out at the 
end of this notice.

    Dated: December 28, 1993.
David M. Unger,
Associate Chief.

Financial Security Measures

Forest Service Manual Chapter 2430, Commercial Timber Sales
    2431.33--Discounting. The line officer with the authority to make 
the timber sale may approve the use of discounting procedures set forth 
in FSH 2409.18, section 54.4 for an individual timber sale to:
    1. Support a need for immediate harvesting, such as an economic 
incentive for early removal of fire-damaged, insect-damaged, or wind-
thrown timber;
    2. Support the accomplishment of land management objectives;
    3. Provide for optimal utilization of salvage timber. Document the 
need and rationale for discounting in the environmental assessment or 
other environmental documentation prepared for the sale.
    The use of discounting on an area-wide basis is permissible upon 
the Regional Forester's request and the Chief's approval when remaining 
volume under contract in an area exceeds 3 times the Allowable Sale 
Quantity (ASQ) or exceeds 3 or more years of sold volume whichever is 
greater. In making this determination, consider total unprocessed 
volume inventories held by area purchasers. Base the request to provide 
a discounting incentive on the need for increasing or providing an even 
flow of timber receipts to the Government.
* * * * *
    2431.43--Bid Guarantee. Require a bid guarantee of 10 percent of 
the advertised value for National Forest System timber sales.
* * * * *
    2432.54--Bid Repudiation. Consider a timber sale contract to be 
repudiated when a timber sale is not consummated because the high 
bidder fails to make the downpayment, provide a performance bond, and/
or execute the contract.
    2432.54a--Notice to Purchaser. The Contracting Officer shall notify 
the bidder of the repudiation and breach of contract by certified mail. 
The date of the receipt of notice shall be the date of the repudiation. 
Also, include notice that the bidder has breached the contract and:
    1. Is subject to exclusion from bidding on the resale pursuant to 
36 CFR 223.86(a)(1).
    2. May be required to make downpayment equal to 20 percent of the 
total advertised value, plus 40 percent of the total bid premium on 
future Forest Service contracts pursuant to 36 CFR 223.49(e).
    2432.54b--Assessment of Damages. Assess damages for a repudiated 
sale in the following manner and sequence:
    1. Offer the sale to the second high bidder at the rates bid by the 
high bidder. If the second high bidder declines the contract, offer it 
in turn to remaining bidders in the order of their bids. If any bidder 
accepts the contract offer at the high bid rate, assess no damages.
    2. If there is no second high bidder, more than one second high 
bidder (tied), or all bidders decline the contract offer, attempt to 
readvertise the repudiated sale within six months of repudiation at 
appropriate appraised rates.
    a. Determine damages based on the difference between the total 
resale bid value and the total value of the repudiated contract. Add 
certain additional costs (such as interest and the cost of resale) as 
indicated in the applicable provision of the sample contract prepared 
for the sale.
    b. If there are no bids on the readvertised sale, base damages on 
the difference between the readvertised appraised value and the total 
bid value of the repudiated contract. Add certain additional costs 
(such as interest and the cost of resale) as indicated by the 
applicable provision of the sample contract prepared for the sale.
    3. If the sale is not excepted to be readvertised within 6 months, 
base damages on the difference between the appraised value of the 
repudiated contract as of date of repudiation and the total bid value 
of the repudiated contract. Add certain additional costs (such as 
interest and the cost of resale) as indicated by the applicable 
provision of the sample contract prepared for the repudiated sale.
* * * * *
Forest Service Manual Chapter 2450, Timber Sale Contract Administration
    FSM 2456.14--Penal Sum of the Performance Bond. The penal sum of 
the performance bond shall be at least 10 percent of the total bid 
value rounded up to the next $100 when the bid value is $10,000 or less 
and the next $1,000 when the bid value exceeds $10,000. The bond may be 
higher than the minimum amount of bond if needed to cover work required 
of the purchaser after the logging season is completed.

Forest Service Handbook

FSH 2409.18, Timber Sale Preparation Handbook--Chapter 50, Final 
Package Preparation, Review, Appraisal and Offering
    54.4--Discount of Payment Rates for Early Harvest. Use the 
procedures of this section for individual sales or on an area-wide 
basis where discounting has been approved (FSM 2431.33). Use the 
following guidelines in establishing discounted rates:
    1. Discounting of payment rates for early harvest may only be 
authorized for scaled sales.
    2. Discount rates are a percentage factor based upon a combination 
of the interest rate being paid on money being borrowed by the Treasury 
at the time of advertisement and the length of time before the sale 
termination date that material is cut and scaled, up to a maximum 
discount of 25%.
    a. Make no discount for material scaled during the 12 months before 
termination of the sale.
    b. For material scaled 12 to 24 months before termination date, 
apply a discount factor of 50 percent of the Treasury rate stated in 
the advertisement.
    c. For material scaled 24 to 36 months before the termination date, 
apply a discount factor of 100 percent of the Treasury rate stated in 
the advertisement.
    d. For material scaled 36 to 48 months before the termination date, 
apply a discount factor of 150 percent of the Treasury rate stated in 
the advertisement.
    e. For material scaled 48 to 60 months before the termination date, 
apply a discount factor of 200 percent of the Treasury rate stated in 
the advertisement.
    f. For material scaled 60 to 72 months before the termination date, 
apply a discount factor of 250 percent of the Treasury rate stated in 
the advertisement.
    g. Make no discount factor exceeding 25 percent of the bid rates at 
any time.
     h. Apply no discount factor that reduces the miminum charge below 
that needed to ensure cost recovery of small business opted road 
construction to be done by the Forest Service or that reduces the 
minimum charge below base rates.
    i. Apply no discount rate that reduces the minimum charge for a 
combination of species, product, and unit of measure listed in the 
timer sale contract below the advertised rate for that combination. 
That is, limit the maximum discount to the bid premium shown for each 
appraisal group listed.

[FR doc. 94-2302 Filed 2-1-94; 8:45 am]
BILLING CODE 3410-11-M